The country's banks rescheduled a record high of Tk63,720 crore loans in just one year in 2022, thanks to the new rescheduling policy restructured by the central bank which widened the repayment period by nearly five times and reduced down payments by four times to facilitate loan defaulters to keep their accounts regular.
The amount was 137% higher than the Tk26,810 crore rescheduled in 2021, according to the financial stability report for 2022, released by the Bangladesh Bank on Sunday.
The central bank resumed reporting rescheduled loans in the stability report identifying it as distressed assets to comply with the condition set by the IMF (International Monetary Fund) for its $4.7 billion budget support package.
Default loans stood at Tk1.31 lakh crore in March this year which was 8.80% of total loans. If rescheduled loans are considered, the total percentage of distressed assets along with default loans will be 13%.
Earlier in July last year, Bangladesh Bank introduced a temporary relaxation policy on rescheduled loans, allowing banks to reschedule loans by taking a reduced down payment and granting borrowers a longer repayment period.
Banks were also allowed to frame their own policy to reschedule loans based on the parameters set by the Bangladesh Bank.
According to the new rescheduling policy, a defaulter is allowed to reschedule the loan four times with 2.5% to 5% down payments which was a maximum of 30% previously.
This also allowed big defaulters with a loan of Tk500 crore and above a maximum of 29 years to make repayments.
Such huge rescheduling loans will have a multiparous impact as it will block funds causing a liquidity crisis, reducing profitability, eroding capital and finally putting the bank at risk of insolvency. -- [Zahid Hussain, former lead economist, World Bank's Dhaka office]
The Bangladesh Bank restructured the rescheduling policy very generously which incentivised non-payment, said Zahid Hussain, former lead economist at the World Bank's Dhaka Office.
Such huge rescheduled loans will block funds causing a liquidity crisis, reducing profitability, eroding capital and finally putting banks at risk of insolvency, he said.
Ahsan H Mansur, executive director, Policy Research Institute, said these rescheduled loans are not likely to come back to banks.
Banks' funds typically remain in constant circulation, but significant rescheduling can disrupt this cycle, rendering the rescheduled amount unusable, the economist explained.
"However, banks still have liquidity as they are getting deposits. Savers are still putting their money into banks even in some scam-hit Islamic banks as depositors in Bangladesh are not smart," he added.
Banks are also willing to reschedule loans as they do not want to keep the provision or write-off against default loans to show a high profit, he added.
Earlier in 2019, loans of Tk52,370 crore were rescheduled under the special loan rescheduling facility which was also known as "One Time Exit" policy offered for defaulters, pushing the total soured loan figure down to a four-year low.
The Bangladesh Bank in May 2016 issued a circular giving a special loan rescheduling facility allowing defaulters to regularise their loans for 10 years by paying a 2% down payment instead of the existing 10%-30% which brought down the default loan rate to 9.19% in December 2019 from a decade-high 12% in September that year.
Though default loans were reduced through window-dressing, it did not last long as it rose by Tk31,000 crore in just the first six months to Tk1.34 lakh crore in September 2022.
In this situation, the central bank brought massive restructures in its rescheduling policy which helped banks to reduce default loans artificially by nearly Tk14,000 crore to Tk1.20 lakh crore at the end of December 2022.
However, all those relaxed policies could not stop rising default loans as it further jumped to Tk1.31 lakh crore in March this year.
The IMF in its Financial Sector Stability Review on Bangladesh in 2019, stated that the default loan figure will be much more than the official data if loans remained unclassified taking the stay order from the High Court and the rescheduled amount is counted.
Later, while approving the latest loan package, the IMF put the condition to identify rescheduled loans as "distressed asset" along with default loans in the Bangladesh Bank's annual financial stability report.
As of the end of 2022, the private commercial banks held the highest amount of rescheduled loans with 71% share when state and specialised banks accounted for 28.4% and foreign banks had less than 1% share, according to the latest stability report.
Out of total outstanding rescheduled loans, the top five banks held 38.3% while the share of the top 10 banks was 58.4%.
The top five banks comprised five private banks and two state banks and the top 10 banks consisted of four state banks and six private banks.
In 2022, 61.4% of the total rescheduled loan outstanding was in large industries. The shares of medium, small, micro and cottage, and other industries were 12.6%, 7.3%, 0.9%, and 17.8% respectively.
There is a concentration of rescheduling loans in some banks as there is a correlation between loan concentration and loan rescheduling, said economist Zahid Hussain.
"Rescheduling concentration reflects that limited businesses are enjoying the benefit of a generous policy," he added.
There is a maturity of loans but some businesses are enjoying unlimited maturity time thanks to such generous policy, Zahid Hussain further said.